A quick rundown of the facts of my situation:
Husband contributed to a spousal RRSP for his wife in 2017. After 2017, wife turned 71 and started receiving RRIF payments. In 2019, excess RRIF payments were taken by wife, and since there were spousal RRSP contributions in the preceding two tax years (2017), the income was attributed back to husband.
I’ve checked off the spousal RRIF box on the wife’s return, and filled out the T2205. Tax Cycle is correctly claiming the pension amount on husband’s return, due to the attribution rules. However, it is incorrectly including the attributed pension amount in the amount eligible for pension splitting. Spousal RRIF income attributed back to the contributing spouse is not eligible for pension splitting, as per CRA interpretation 2007-0257001E5 Income Tax Severed Letters - 2009-05-22 | Tax Interpretations
Is there a box that I need to click somewhere to remove the attributed amount from the eligible pension calculation, or will this require me to manually override it?
Also, according to the above interpretation the amounts attributed back to husband would not be eligible pension for the purpose of the pension income tax credit either.
I submit that the position taken by the author of TI 2007-0257001E5 is not reflected in CRA’s instructions for the T1, T1032, T2205, and “Worksheet for the return” - Line 31400 [see form 5000-D1 E (20) the relevant part of which is part of the Credits worksheet in TaxCycle]. In short, I think tha TI 2007-0257001E5 is at best out of date, and quite likely was incorrect at the time it was issued.
In plain English, T2205 determines the amount the contributor must include at line 11500 (if over 64), which carries forward to the line 31400 calculation and from there to the T1032 calculation. At no point do the latter two calculations require an adjustment for the amount from the T2205. My conclusion is that TaxCycle has it right.
I like this answer. I do think that the legal interpretation of the law sounds correct in that link, however CRA does seem to contradict that interpretation with its own worksheet, like you say.
Well, as for legal interpretation, where does the law say you can’t include the attributed RRIF payment in the contributor’s eligible pension income? I don’t think it does. In fact the the interpretation in TI 2007-0257001E5 doesn’t “sound right” to me. Subsection 146.3(5.1) does not say “except for the purposes of section 60.03”, and neither section 60.03 nor subsection 118(7) refers to subsection 146.3(5.1) - so I don’t think TI 2007-0257001E5 was on solid ground in the first place.
Attribution of excess withdrawals from spousal RRIFs has been around longer than pension splitting. If parliament had wanted to exclude attributed RRIF withdrawals from pension splitting it could have done so - but would it have been worth the effort to collect a little more tax on 50% of withdrawals that are largely made by the unwary and the ill-advised?